Grey fields in rural China: Industrial pollution and agricultural productivity losses

Rural industrial transfer has increasingly reshaped land-use patterns and environmental burdens in China’s countryside, yet its implications for agricultural productivity remain insufficiently understood. Guided by an extended agricultural household framework, this study examines whether the presence of highly polluting industries near rural villages is associated with changes in agricultural total factor productivity (TFP). Using panel data from the China Family Panel Studies (CFPS), we employ a difference-in-differences framework based on the reported presence of highly polluting industries within 5 km of villages. The results indicate that the emergence of nearby highly polluting industries is associated with an approximately 23% decline in agricultural household TFP. A series of robustness checks, matching analyses, and placebo exercises suggest that the negative association remains relatively stable across alternative empirical specifications. Additional analyses provide supplementary evidence broadly consistent with pollution-related channels, partly through reduced labor quality, although the available data do not allow direct observation of pollutant exposure or definitive identification of specific mechanisms. We further find substantial heterogeneity across locations and village structures: the negative association is stronger in villages located farther from provincial or county capitals and weaker in villages with higher concentrations of large surnames. These findings highlight the potentially uneven environmental costs of rural industrialization and underscore the importance of land-use governance, industrial siting regulation, and rural environmental protection for sustainable agricultural development.